Business > QUESTION PAPER (QP) > BUSI2025 International Business 1 Case Analysis No. 4 The end of Australia’s car industry (All)

BUSI2025 International Business 1 Case Analysis No. 4 The end of Australia’s car industry

Document Content and Description Below

BUSI2025 International Business 1 Case Analysis No. 4 The end of Australia’s car industry In October last year Australia’s last two remaining car production companies closed their doors for th... e final time. Toyota ended production on 3 October 2017 at its Altona, Victoria plant, ending nearly 54 years of making cars in Australia while Holden’s South Australian production plant closed on 20 October after 69 years of Australian production. Australia’s only other car manufacturer, Ford, ceased production in October 2016 with the loss of 1,200 manufacturing jobs. Ford had announced its closure in 2013 after reporting a $141 million loss in that financial year with five year losses amounting to $600 million. These losses were incurred despite the Australian government’s continued financial support of the car industry. At the time, Ford president Bob Graziano said the company had been forced to make the decision after taking “significant steps to restructure our business and to be profitable and sustainable… Despite these efforts, our locally-made products continue to be unprofitable while our imported products are profitable… In the search to improve scale and competitiveness, we explored what export opportunities might be available to us, but we are still faced with the fact our cost structure remained uncompetitive”. Ford ranked 6th in terms of new car sales in Australia in 2017 but with only 6.6 per cent market share. In 2005 locally made cars accounted for 25 per cent of all new cars sold, however by 2017 only 5 per cent of cars sold in Australia were built here. The irony is that despite a steady decline in Australian production, Australians have bought more than 1 million new cars each year for the past 9 years with 2017 setting a sales record of 1,189,116 cars. Australia developed its car industry the easy way: it imposed high tariffs on imported cars, which forced global firms to set up plants here if they wanted to sell large numbers of cars to the Australian market. When cheap Asian cars started climbing over the tariff wall, we put up a second wall, imposing quotas that restricted imports to 20 per cent of the Australian market. But then our tastes changed and Australia came under pressure to cut its policy of restricting imports. Meanwhile the Korean and Japanese companies were producing 10 times as many cars as Australia’s plants and our industry became a small-scale remnant of what is now a truly global market. The demise of Ford in Australia is not the first time a car manufacturer has decided that Australia is uncompetitive. Nissan was the first casualty, closing its doors in 1992, followed by Mitsubishi in 2008. At the time of Ford’s announcement the remaining companies, Toyota and Holden, were also faring badly, having cut hundreds of jobs and running up big losses. Perhaps unsurprisingly, Ford’s announcement was followed by Holden’s decision in December 2013 that it would also cease production in 2017. Then in February 2014, Toyota announced that it too would quit production in Australia by 2017, causing a loss of 2,500 jobs. By the end of October 2017 Australia no longer had a car manufacturing industry, casting great uncertainty over the future of Australia’s many component suppliers. A manufacturing sector which in 2013 employed over 20,000 people directly and around 220,000 indirectly, produced 221,000 cars a year, and generated $3.7 billion of exports and $5 billion of value-added output would be lost. Among the various reasons for the industry’s demise, the simple fact is that Australians have far more choice when purchasing a vehicle. Australians now have 64 automotive brands to choose from compared to 38 in the US. By 2013 Australians were buying more Korean-built cars, twice as many Thai-built cars and four times as many Japanese-built cars. While the three manufacturers were all struggling, Ford stood alone as the one firm that had not really developed an export market except for a small number of sales in New Zealand and South Africa. In contrast, in 2016 Toyota Australia exported 34,400 of its 61,000 locally-made vehicles, accounting for nearly $1 billion in export sales. But even strong export sales were not enough to save Toyota, which in 2016 averaged only $373 profit per car sold.BUSI2025 International Business 2 The high Australian dollar at the time of the 2013 closure decisions was clearly hurting the Australian car industry. Import volumes continued to grow as foreign car models became relatively cheaper in real terms. This was also helped by the Australian government’s decision to reduce import tariffs in 2010 from 10 per cent to 5 per cent level, a far cry from 57.5 per cent in the 1980s. Australia’s Free Trade Agreement (FTA) with Thailand was a further blow to local production and there were calls to end the Luxury Car Tax as well. As the managing director of Holden, Mike Devereux, said “the appreciation of the dollar meant that it cost 60 per cent more to make things in Australia than it did 10 years ago… The Australian auto industry is heavily trade exposed. We are witnessing a structural shift in the market for anyone who makes things in this country.” However, it’s not just the currency that is attracting blame for the end of Australia’s car industry. In the past few years Australia’s car companies have struggled against Australia’s higher cost structures and competitive pricing of cars globally. For example, a car assembly line worker was paid $12,500 a year in Thailand but about $69,000 in Australia. The Australian Bureau of Statistics estimates that new car prices peaked in December 1995 and have since fallen by over 25 per cent. Relative to other prices, cars today cost less than half as much for consumers as in 1995. It had been nearly impossible for Ford, Holden and Toyota to reduce their prices by 25 per cent to remain import competitive when average costs in Australia have risen by about 55 per cent since that time. Yet some hope remains for niche areas within Australia’s car industry. Ford has remained in Australia with a focus on research and development in design and engineering, which already employs about a 1,500 workers. Some industry analysts point to a future where Australian expertise in automotive design and engineering can be exported to China or India’s emerging car giants, thereby finding a valued place in their global supply chains. Sources: Adapted from Wallace, R. & Ferguson, J. 2014, ‘Toyota to stop making cars in Australia, follows Ford and Holden’, The Australian, 10 February; Griffiths, E. 2014, ‘ Holden to cease manufacturing operations in Australia in 2017’, ABC News, 14 January; Bhatt, N. 2012. ‘The future of Australia’s auto industry’, Business Spectator, 4 September; Razagui, H. 2013. ‘Toyota Australia exports head towards 70K’, GoAuto, 4 April; Hutchens, G. & Blackburn, R. 2013. ‘Holden blow to industry future’, Sydney Morning Herald, 9 April; ABC News, 2013. ‘Ford Australia to close Broadmeadows and Geelong plants, 1,200 jobs to go’, 23 May; Colebatch, T. 2013. ‘Retracing the fall of the car industry’, Sydney Morning Herald, 25 May; Mark, D. 2013. ‘Ford closure highlights car manufacturing industry’s struggle for survival’, ABC News, 19 June; Dowling, J. 2015, ‘Australian car industry slams the brakes, biggest sales slowdown since the GFC and tsunami’, News.com.au, 6 January; Minchin, T. 2016, ‘The Ford shutdown could impact Australia more than we think’, Business Insider, 7 October; Practicalmotoring.com.au, 2017 ‘2016 sets a record for Australian new car sales’, 5 January; Dowling, J. 2017. ‘Holden last to turn out the lights on Australian car manufacturing after Toyota announces October 3 shutdown’, News.com.au, 31 January; Dowling, J. 2017, ‘Why Australian car manufacturing died — and what it means for our motoring future’, The Advertiser, 3 February; Charlwood, S. 2017, ‘Toyota Australia profits slump $137 million in 12 months’, Motoring, 16 June; Selwyn. B. 2018. 2017 Australian new vehicle sales: Year in review, Acaresearch, 16 January. Questions 1. Do you think Australia’s car companies could have done more to ensure their survival? Explain your answer. 2. What factors explain the previous investment in the Australian car manufacturing industry and its more recent closure? 3. Do you think manufacturing has a future in Australia, and if so, in what form? Explain your answer. [Show More]

Last updated: 1 year ago

Preview 1 out of 2 pages

Add to cart

Instant download

document-preview

Buy this document to get the full access instantly

Instant Download Access after purchase

Add to cart

Instant download

Reviews( 0 )

$6.00

Add to cart

Instant download

Can't find what you want? Try our AI powered Search

OR

REQUEST DOCUMENT
110
0

Document information


Connected school, study & course


About the document


Uploaded On

Aug 27, 2019

Number of pages

2

Written in

Seller


seller-icon
QuizMaster

Member since 4 years

1089 Documents Sold


Additional information

This document has been written for:

Uploaded

Aug 27, 2019

Downloads

 0

Views

 110

Document Keyword Tags

What is Browsegrades

In Browsegrades, a student can earn by offering help to other student. Students can help other students with materials by upploading their notes and earn money.

We are here to help

We're available through e-mail, Twitter, Facebook, and live chat.
 FAQ
 Questions? Leave a message!

Follow us on
 Twitter

Copyright © Browsegrades · High quality services·